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USD/CAD recorded strong gains for a second successive week, climbing close to 1 percent. There are only two events on the calendar in the week ahead. Here is an outlook for the highlights of this week and an updated technical analysis for USD/CAD.

The Bank of Canada maintained the benchmark rate at 1.75%, where rates have been pegged since October. The rate statement was dovish, which weighed on the Canadian dollar. In the rate statement,  policymakers dropped a reference to rates rising over time. Instead, the bank said that the economy will continue to require stimulus and said that there was “increased uncertainty” about future rate hikes. The pessimistic language is a result of the economic slowdown, which has been worse than the bank anticipated. The BoC’s dovish tone has reinforced market expectations that the bank will not raise rates in the near future, and could lower rates if the economy continues to weaken.

Canada and the U.S .both ended the week with key employment numbers, with very different results. Canada added 55.9 thousand, crushing the estimate of 0.6 thousand. In the U.S., nonfarm payrolls plunged to 20 thousand, much worse than the forecast of 180 thousand. Wage growth improved to 0.4%, above the estimate of 0.3%. The Canadian dollar responded with slight gains to end the week.

USD/CAD daily chart with support and resistance lines on it. Click to enlarge:

  1. NHPI: Thursday, 00:30. The New Housing Price Index has been pegged at a flat 0.0% for five successive months. Another reading of 0.0% is projected in the January release.
  2. Manufacturing Sales: Friday, 12:30. This key indicator should be treated as a market-mover. The manufacturing sector has been hurt by the global trading war, and manufacturing sales have declined in four of the past five releases. Another weak release could send the Canadian dollar lower.

*All times are GMT

USD/CAD Technical Analysis

USD/CAD continued to test resistance at 1.3445 (mentioned last week).

Technical lines from top to bottom:

With USD/CAD posting strong gains last week, we start at higher levels:

1.3757 has held in resistance since May 2017.

1.3660 was the high point for USD/CAD in December.

1.3547 capped USD/CAD in June 2017. Next, 1.3445 was the peak in early December.

1.3385 was the high point seen in May. 1.3350 was a stepping stone on the way and on the way down around the same time.

Lower, 1.3265 was the high point in mid-November. 1.3225 was tested in support in the middle of the week.

1.3175 was a swing low in late November.

1.3125 was a low point earlier that month.

1.3048 has provided support since early November.

I am bullish on USD/CAD

The slowdown in the Canadian economy is deeper than expected, as underscored by two straight declines in GDP. The BoC rate statement was understandably dovish, and investors will not be rushing to invest in an economy with questions marks. At the same time, further progress in the U.S-China trade war would raise risk appetite and likely boost the Canadian currency.

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